.png)
.png)
The government should take measures to provide the elderly with more efficient and accessible tax information that includes a consolidated notice of tax coding, the Office of Tax Simplification (OTS) has recommended.
In its final report on the pensions system, the OTS urges HMRC to address the confusion that can arise for taxpayers who receive multiple PAYE coding notices: the department should issue a consolidated alert (a “form P2C”) that explains all of a pensioner’s codes and shows how his or her personal allowance is used.
The document also proposes that the Department for Work and Pensions (DWP) issue an annual statement that sets out the amount of taxable income received from the state pension and social security benefits in the tax year. The form, to be called a DWP60, would parallel to the standard P60.
Among several other administrative points, the OTS recommends that banks and building societies annually check the tax status of savings accounts held by pensions, and that the Revenue creates an online portal through which to submit form R40 to reclaim tax erroneously paid on savings.
The proposals follow an interim report issued last March - which led to the introduction of measures intended to ease tax issues for pensioners – and stem from extensive discussions with pensioners and their representative groups, charities, tax agents and the tax authorities.
Technical aspects include the condensing of the married couples’ allowance (MCA) to a flat payment - signalling the end of the income abatement system and streamlining administrative aspects – and the abolition of the 10% income tax on savings income, which suffers from “low take-up levels” and is “ineffective in incentivising saving”.
The special rate should be raised to the standard 20%, and the extra money earned by the government “could be used to make a pragmatic above-inflation increase in the ISA limit”.
The report recognises this proposal would affect people outside the remit of the review but does not believe its conclusions “are likely to be altered by a study of wider age groups”
The tax director of the OTS, John Whiting, said: “We have to work within our brief to be revenue-neutral, but we think our recommendations could make a real difference in stripping away complexities and giving pensioners information that will help understanding and make it easier for them to deal with their obligations.”
He added that the office had focused on “sensible solutions that could provide real help” rather than calling for drastic changes to the taxation of the state pension. Bringing it into the PAYE system “would cause lots of problems”, while exempting it from tax “would be unfair on other taxpayers and costly for the government”.
The new set of proposals follow last week’s paper in which the OTS mooted significant reform of the taxation of unapproved employee share schemes.
